Trade wars bring risks

If Europe labels China an industrial threat, it will fail to fully recognize that Chinese technologies may facilitate its green transition

For much of the past two decades, Europe’s trade policy toward China was built on an assumption that engagement would benefit both sides — China was a vast market for European cars, machinery, luxury goods and technology; Europe was a rich consumer market for Chinese manufactured products. Yet things changed. In 2019, the European Union formally described China not only as a partner, but also as an economic competitor. The EU-China Comprehensive Agreement on Investment, once seen as a symbol of deeper EU-China economic engagement, was politically frozen. Then came the pandemic, the Ukraine crisis, the energy crisis and, with it, rising concerns over supply chain security. Europe started to turn toward “de-risking”. Trade with China is no longer viewed as a market opportunity, but increasingly as a risk.

Following the EU summit from June 18 to 19, where discussions on how to bolster Europe’s competitiveness and counter “global macroeconomic imbalances” took center stage, a new proposal requiring EU companies to diversify their sources of key supplies — in the hope of stepping up the latent “de-risking” efforts — is on the agenda. Yet a full-blown trade war with China would be very dangerous for Europe.

First, a trade war would make Europe’s green transition more expensive. Price is the gateway to demand, and demand lays the foundation upon which European clean-tech capacity will eventually be built. Chinese electric vehicles, batteries, solar panels and renewable technologies are demand creators. Because of lower costs, their mass adoption becomes possible. Once consumers buy EVs, governments build charging infrastructure. Once solar panels become affordable, households, companies and cities invest in distributed energy. Once batteries become cheaper, storage, recycling, grid modernization and smart-energy services become commercially viable. In this sense, affordable Chinese clean technologies can help create the market conditions in which European green industries themselves may grow. Europe cannot develop a full renewable-energy ecosystem if renewable deployment is slowed by high costs. Demand must come before scale; scale must come before competitiveness. If Europe raises prices too quickly in the name of protecting industry, it will weaken the very demand that industry needs.

Second, energy security remains a critical challenge for Europe. Europe has learned from the Ukraine crisis that energy dependence is never only commercial. When the security environment changed, dependence became a vulnerability. Europe has since moved away from Russian energy, but it has not fully escaped its dependence on imported fossil fuels. In some sense, Europe has simply changed suppliers. The United States has become a major provider of liquefied natural gas to Europe. This may be geopolitically safer, but it is still dependence and dependency does not disappear when the supplier changes; it merely changes the actor who has leverage. Even allies can use dependence as an instrument of pressure.

That is why a trade war with China over clean technologies could be irrational. In the short run, the balance of trade might look better; but such a strategy would sacrifice Europe’s energy resilience in the long run, and Europe would remain vulnerable to geopolitical shocks and external coercion. A wiser path would be for Europe to use Chinese clean-tech supply and investment as a transitional accelerator while building European capacity, instead of starting a broad trade war that slows the transition.

Third, Europe faces internal divisions. Energy dependence is not only a foreign-policy problem but also a threat to European unity. The energy crisis following the Ukraine crisis revealed how differently member states respond to external shocks. Some wish to cut Russian gas entirely, others do not; some turn to nuclear power, others reject it; some have stronger fiscal capacity to subsidize households and businesses, while others lack the resources. As a result, every energy crisis becomes an intra-European political crisis. If Europe fails to make energy cheap and abundant, these divisions will deepen with each subsequent crisis, as we have already seen with the ongoing Strait of Hormuz crisis.

Fourth, the nature of the EU itself creates distinct constraints. Europe is a slow-moving bureaucratic machine. This gives it strength but it also creates rigidity. The United States can change trade policy quickly when its administration changes. Europe cannot. Once tariffs, legal procedures, trade barriers and regulatory frameworks are set in motion, reversal becomes slow and politically costly.

That is why Europe should be especially cautious before starting a trade war with China. Trade wars, like other forms of war, are easy to begin and difficult to end. They create vested interests; they harden political narratives; they make compromise look like weakness; they turn technical disputes into questions of pride. Once China is framed primarily as a threat to Europe’s industry, it becomes harder to acknowledge that Chinese technology may also be useful to Europe’s green transition. Recent conflicts have taught a simple lesson: wars often begin with confidence and end with exhaustion. Economic wars are no exception. They may start as limited measures, but they can expand and spiral out of control. Europe should not sleepwalk into such a conflict.

The smarter path is therefore to reduce strategic vulnerability in the long run, not limit its vision to the short-term balance of the books. That means resisting the temptation of a broad trade war with China, which is dangerous not only economically but strategically. Instead, Europe should pursue a dual strategy: using affordable Chinese clean-tech imports to accelerate the green transition today while systematically building the European industrial and technological capacity that will reduce dependence tomorrow.

Strategic autonomy will not be achieved by raising the cost of Europe’s own transformation. It will be achieved by making the green transition faster and more resilient. Europe’s choice is not between dependence on China and protectionism. The real choice is between a pragmatic strategy that uses global clean-tech capacity to accelerate European renewal, and a defensive strategy that traps Europe longer in its old nightmares and insecurities.

The author is an associate professor at the School of Public Policy at Hunan University. 

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.